The near collapse of our financial markets three years ago has left a lasting legacy: 24 million Americans unemployed or unable to find full time work, almost $9 trillion in household wealth and retirement savings wiped away, and a federal budget deficit that has ballooned by more than $1 trillion annually.
Have we learned the lessons of the financial crisis? The answer lies somewhere between "no" and "not enough."
When the Financial Crisis Inquiry Commission released its report in January, we concluded that this was an avoidable crisis caused by widespread failures of regulators and policy makers, dramatic breakdowns in the management of major financial institutions, excessive risk taking by Wall Street, and disturbing breaches in accountability and ethics. Those conclusions are backed up by the report of our investigation-the accuracy of which has gone unchallenged since its release.
Yet, in many ways, our financial system is unchanged from what it was before the crisis, and there seems to be little correlation between who drove the crisis and who is paying the price. Many people who followed all the rules now fear for their economic security, while profits and pay on Wall Street are at or above pre-crisis levels. Stunningly, we are now seeing concerted efforts to block needed financial reforms.
The House of Representatives has tried to strip funding needed by the Securities and Exchange Commission and the Commodities Future Trading Commission to implement the Dodd-Frank Act. In the Senate, 44 Republicans have vowed to block any nominee to head the new Consumer Financial Protection Bureau unless its authority is weakened. And Alan Greenspan, who led us down the path of financial disaster, has decried "the current 'anything goes' regulatory ethos"-a phrase that ironically describes his own failed policies as Federal Reserve Chairman.
Instead of obstructionism, we need real reform and a reinvention of our markets and our economy. Here are four steps to get us on our way.
First, regulators and prosecutors must ensure that those who crossed the legal line are brought to justice. Vigorous prosecution of violations of law is critical to avoiding the next crisis. After all, if someone robbed $500 from a 7-11 and then was able to settle for $25 and no admission of wrongdoing, wouldn't they be likely to do it again?
Secondly, we need to enforce new laws enacted to curb excessive risk and improve transparency. That means having regulators with backbone and a Congress that does the right kind of oversight-making sure the regulators are doing their jobs, not trying to block them.
Third, we need the financial industry to embrace a new era of responsibility. Two good places to start-changing compensation incentives to reward true value creation, not recklessness, and rooting out conflicts that hurt clients, diminish trust, and ultimately damage shareholder value.
Finally, we must commit ourselves to building an economy that puts people back to work and creates real wealth for America's future.
Over the past decade, we squandered enormous capital on creating trillions of dollars of defective mortgage securities rather than focusing on investments-in infrastructure, technology, and clean energy-that would increase our productivity and strength.
The financial sector's share of corporate profits rose from 15 percent in 1980 to over 30 percent by the early 2000s, while the debt held by the financial sector soared from $3 trillion in 1978 to $36 trillion by 2007.
It's time for an economy based on money creating value, not just money making money.
The story of this crisis of is not yet finished. How it ends is still in our hands.
Angelides served as chairman of the Financial Crisis Inquiry Commission, which conducted the nation's official inquiry into the financial and economic crisis.
